FTX Seeks UK and Europe Expansion

FTX, a cryptocurrency exchange, wants to expand into the United Kingdom and has begun negotiations with regulators to dominate the European market.

How Will This Happen?

FTX's market regulation concepts and plans include numerous critical areas. To begin, authorities could propose a principles-based approach to overseeing spot and derivatives crypto trading markets, leveraging current policy goals that apply to traditional capital and derivatives markets. Customer and investor protection, market integrity, financial crime prevention, and overall system safety and soundness are among the objectives. If enacted, regulations that promote these goals will apply equally to all markets for crypto assets trading.

Second, FTX and other crypto platforms have introduced significant trading innovations, which should be preserved under a sound framework. This is because they reduce risk, increase capital efficiency, and safeguard investors, all of which benefit the general public. Among the key innovations are:

• Automated risk-management systems that ensure customer accounts trading multiple assets do not go net negative across customer positions.

• 24/7 trading hours, which reduces risk.

• Permissioning a non-intermediated market structure gives all investors equal access to the market and helps minimize conflicts of interest.

• Free-market data aligns the platform operator's interest with the investors.

Third, a useful framework would enable crypto platforms to provide both spot and derivatives trading on crypto assets under a single unified system. A single rule book and technological platform would control risks associated with all trading activity in customer accounts. Regulatory frameworks were formed in mature countries, such as the United States, in response to fragmented markets for securities, commodities, and derivatives on such assets. FTX has shown that combining markets for both assets and derivatives provide significant benefits to market participants.

Because of the risk-reduction and customer-protection benefits of this one rule book paradigm, public policy should allow it.

Regulators in countries with multiple market regulators, such as the US, should collaborate and use their authorities when appropriate to accommodate this paradigm for crypto assets. Simultaneously, legislators could remedy any remaining gaps not adequately addressed under current powers.

Fourth, an acceptable regulatory framework for crypto-asset market regulation should be market-structure agnostic and explicitly permit non-intermediated markets. It could also take a functional approach, requiring the platform operator to disclose policies and procedures addressing critical issues like:

• asset custody

• key platform features related to the lifecycle of a trade

• reporting of market activity to supervisors

• provisioning market data to platform users

• ensuring adequate financial resources

• ensuring stable coins used on the platform are subject to adequate standards

• protecting against cyber-attacks and financial fraud

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